Are life insurance payments, if paid by reason of the death of the insured, included in gross income?

Life insurance payments made due to the death of the insured are not included in gross income. This exclusion means that beneficiaries do not have to report these payments as income when they receive them. The rationale behind this is that the purpose of life insurance is to provide financial support to beneficiaries in the event of the insured's death, without imposing an additional tax burden on them.

The tax code recognizes the unique nature of these payments and has established this exclusion to encourage families to secure financial protection through life insurance policies. Therefore, when the insured passes away and the policy pays out, the beneficiaries receive the funds free from income tax obligations.

This principle holds true regardless of the amount received, meaning there are no thresholds that would trigger taxable income. It applies equally to individual policies as well as to policies owned by businesses, ensuring that the beneficiaries can utilize the funds as intended without tax implications.